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Chapter 27: Q. d- For Critical Thinking (page 613)

Why do you suppose that nearly all of the world's antitrust authorities agree that collusive conspiracies to restrain trade and fix prices are illegal?

Short Answer

Expert verified

In economics and market competition, collusion occurs when rival companies collaborate for mutual benefit. As a trade and competition restraint, the Court's decision prohibited all such price-fixing agreements.

Step by step solution

01

Introduction.

Any Governmental Authority charged with trying to enforce, applying, administering, or investigating any Antitrust Laws, including the United States, is referred to as an Antitrust Authority.

02

Collusive conspiracies. 

Collusion occurs within an industry in the study of economics and market competition when rival companies cooperate for their mutual advantage. Conspiracy typically entails an agreement between two or more vendors to take action to suppress market competition between sellers.

03

Antitrust Act.

The Court's decision overturned a nearly century-old rule that prohibited all such price-fixing agreements as a trade and competition restraint. All practices restraining commerce are illegal under the Sherman Antitrust Act of 1890.

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Most popular questions from this chapter

Why do you suppose that the U.S. Transportation Department has been considering new regulations mandating that states construct parking facilities for trucks?

As noted in the chapter, separating the production of electricity from its delivery has led to considerable deregulation of producers.

a. Briefly explain which of these two aspects of the sale of electricity remains susceptible to natural monopoly problems.

b. Suppose that the potential natural monopoly problem you identified in part (a) actually arises. Why is marginal cost pricing not a feasible solution? What makes average cost pricing a feasible solution?

c. Discuss two approaches that a regulator could use to try to implement an average-cost-pricing solution to the problem identified in part (a).

An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.

Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.

Explain the main rationales for regulation of industries that are not inherently monopolistic

Prices of tickets for seats on commercial passenger planes are typically in the hundreds of dollars, whereas trips often can be made by automobile at lower cost. Accident rates per person per trip in the airline industry are considerably lower than auto accident rates per person per trip. Based on these facts, discuss how regulatory costs and benefits may help to explain why government regulations require children to be placed in safety seats in automobiles but not on commercial passenger planes.

Suppose that a business has developed a very high quality product and operates more efficiently in producing that product than any other potential competitor. As a consequence, at present it is the only seller of this product, for which there are few close substitutes. Is this firm in violation of U.S. antitrust laws? Explain.
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